If the Covid crisis really is turning us into a cashless society, it is a message which hasn’t got through yet to a small but significant slice of the population. Far from dumping cash and paying with the cards, iPhones, fingerprints, surgical implants, ear lobes or whatever, they seem more determined than ever to keep their money in cash. Never mind the somewhat over-stated risk of catching Covid 19 from physical money – which is no more likely than catching from the goods you are buying – they can’t get their hands on enough bundles of notes. According to Bank of England Chief Cashier Sarah John one in ten Britons have reacted to the crisis by hoarding more cash at home.
Is anyone surprised? They shouldn’t be. It is what happened during the last economic crisis. Between 2007 and 2010 the amount of cash in circulation increased by a third, from £38 billion to £50 billion. When you remember that there were times during that crisis when banks feared they would go bust by the end of the day, taking down their savers’ money with them, you can hardly blame people with account balances above the level guaranteed by the government for hooking out their money and keeping it down the back of the sofa.
The banks aren’t going bust this time around – at least not yet. Nevertheless, for a significant slice of the population, financial uncertainty increases anxiety about the security of electronic money. For them, physical cash and assets that you can see and touch provide a level of security which they feel they cannot be offered by any bank. Historically, inflation was a good reason to be shy of keeping any wealth in cash, but not at the moment. On the contrary, as I wrote here a fortnight ago, the bigger danger now is banks nibbling away at our savings through negative interest rates. True, there’s a risk of having cash stolen, but then, so, too, is there a risk of having your bank account emptied by fraudsters. It is easy to scoff at people who fall for scams, but naivety hardly deserves to be rewarded with having your life savings stolen.
But there is another event this year which will have caused some to question the benefits of cashless payments: the collapse of German fintech giant Wirecard. Many people may never even have heard of the company – until they found the balances on their payment cards and app-based payment systems frozen. Many such services piggybacked on Wirecard’s technology.
Government, central banks and the fintech industry can crow all they like about what they see as the benefits of a cashless society, but they are not going to convince the refuseniks who want to store and pay with cash – often in large quantities. The question is, what do you do with this group? Do you ban cash payments greater than a set figure, as France has done? Do you try to eliminate by stealth the opportunity to pay for things with cash? That is certainly what has been going on lately, with more and more shops, cafes and the like reported to be refusing cash.
But why? Why not simply tolerate people using cash if that is what they wish to do? I can see why it would suit a fintech start-up if the entire population was forced to use services provided by the sector all the time. But there is no good reason why the rest of us should want to submit a cashless economy, and many reasons why we should want to retain the right to pay with cash. Fortunately, to judge by recent pronouncements on interest rates, the bank of England seems to agree.
The War Against Cash by Ross Clark is published by Harriman House